Before i present you my opinion, let me tell you story. Imagine you are an owner of retail store. And one day manager comes to you with a presentation of his idea. It’s a very nice presentation, with graphs and maybe even some math. But the core idea of that presentation is he suggest you to cut profit margines for your store, and the money, saved from cutting down your profits, be used to pay more for your suppliers, so then suppliers could bring more supplies to your store. And then you look at very logical presentation and look at your supplies, and then you ask just a one question. Ok, but wait a minute, i look at supply of one thing (usdc) and i see it utilised by about 35% and i look at supply of another thing (dai) and see it utilized at about 45% and i as an owner would prefer it actually about 60-75. And you seriously suggest to cut our profits, in favor to bring more of the dudes i don’t even want to have? I was actually thinking how to get rid of 1/3 of them, so utilisation would go up and remaining ones would actually earn more? How long that manager would keep it’s job i wonder?
So now, when you see the picture, let’s talk why this proposal is bad for protocol and why pretty much anyone in their mind should vote against. I don’t know where Gauntlet got that idea, that protocol reserves are there only in case of some unlikely insolvency moment. It’s not. It’s earnings of the protocol, which can be used to cover insolvencies, but also it can be used to fund development, or create a paycheck for some teams doing some job for protocol, like Gauntlet itself. So irony is that they trying to chop a branch on which they are sitting themselves.
For those who might not fully understand, reserves actually work like a sort of a tax protocol puts on a revenue, it collects from Borrowers. And the Borrowers side is actually the ones who actually create a profits. Be it in speculations which they do with borrowed assets, or maybe they use Compound as a long term cheap funding for their business. That reserves rate is actually very small to be honest. If USDC, for example, have Borrowing APY about 2%, that 7% is taken from that 2% APY and the rest is distributed to suppliers. Do not be decieved by seemingly big numbers of current reserves, much of them were collected from vastly higher APY, which used to be even double digits at a times. It takes years to collect any meaningful amounts with such taxation rates. And Gauntlet servicies aren’t coming for free, not to mention there is also OpenZepellin with 1M$ every quarter. How the heck you guys imagine to be able to collect your own paychecks, especially when COMP tokens will run out, and they going to run out fast especially if markets go into prolonged bear, as the cheaper the COMP tokens become the more of them protocol would need to spend to cover costs.
It wasn’t very smart idea to rely only on COMP tokens to begin with, as they are generally limited, and it’s not in the best interest of protocol to spend it’s treasury tokens when price is very much in bear territory. But in any case they WILL run out eventually, and the costs for protocol WILL NOT disapper, they can actually go higher due to inflation. 3.86M per year of reserve growing ain’t even going to cover OpenZepellin alone not to mention anyone else.
I strongly advice to vote NO for such proposal, as it undermines protocol long term revenue, putting it in much worse position as it is currently. And to be frank, potential increase of yield for suppliers going to be as negligeble, that pretty much every individual supplier would need a microscope to notice it. Even if we take all the potential savings of 1.53M and put it exclusevely on stable coin markets, that would be somewhere around 0.05%APR increase, which of course, would’t make anybody to earn more, as if amount of suppliers increase, the APY will go down to reach pretty much similar balance point it was at before.
Suppliers are not a priority for Compound, they not earn anything, that is expenses that borrowers pay for capital. And if there is no borrowing demand, the suppliers have to go anyway, till yields can reach equilibrium at lower point.
If anything, protocol should consider increasing reserve factors on primary earning assets (stable coins) and unifying them to be in line with each other. The primary guidence here should be that rate of taxation on borrower payments should be low enough to be considered not prohibitive, which for stable coins is probably something not higher than 10%. For collateral assets like wbtc and eth that could be much higher, as those assets do not really produce any meaningful yield for supply side, and most suppliers would’t mind to not recieve those pennies at all, as it’s all in range of less than 0.1% APY. Thus reserve factor could be all the way to 50%. If some suppliers are not happy with not recieving yields they are very welcome to withdrow and go anywhere else, as for collateral markets there is negligeble borrowing demand, and if there are no borrowers, you don’t really need many Suppliers. Minor markets are negligeble for Compound as reserve assets, and thus reserve factor for small markets could (up to governance) potentially be zeroed without any significant downside for protocol.
Those people who plan to support decrease of protocol revenue, you have been warned. 
If we want to have a sustainable future-proof financial system, we couldn’t build it in same way as current pretty much collapsing financial architecture is. Protocol have to be able to generate enough profits to maintain it’s own development, bug bounties, risc analytics, and do that without relying on VC, or tokens issue or similar temporary measures. Think about it, and vote wisely.